Apartment Supply Volumes Peak at a 30-Year High in 2017

The number of apartments completed in the U.S. hit a 30-year high in 2017, an apparent peak for this high-development market cycle.

Apartment completions in the 150 largest U.S. metros spiked at 364,713 units in 2017, a volume that beats the 2016 level by a significant 30% and more than doubles the long-term average. Completions in the past year grew the U.S. apartment stock 2.1%.

Driving the national completion volume in 2017 were the 15 metros that have led for development volumes throughout the current cycle. Those metros – where construction is particularly active in urban core areas – contributed roughly half of the nation’s new units in the past year.

While Houston was the new supply leader just a year ago, 2017 numbers show Dallas and New York pushing ahead of the energy giant. Dallas added 25,104 units in the past year, while New York saw 22,666 completions.

Houston came in third place with 20,759 apartments built in 2017. While high by historical standards, new supply in Houston was absorbed relatively well. Absorption here was bolstered toward the end of the year by displaced residents who turned to apartments in the wake of Hurricane Harvey.

Also notable was the completion volume in Nashville. There, a total of 9,893 units were delivered last year, causing a steep annual occupancy decline in 2017 as operators struggled to fill all of the new units.

Even with record-high supply volumes, absorption across the top 150 markets essentially kept pace. Despite a seasonal lull in 4th quarter 2017, apartment demand remained strong for the year, keeping occupancy levels steady at 95%. However, operators have reined in their pricing strategies in an effort to fill new units. For the nation overall, rent growth clocked in at 2.6%. That’s down from the roughly 4% to 5% increase common from 2014 through 2016.

Contributing to the nation’s ability to absorb so much new supply in 2017 was a reasonably healthy economy and favorable demographics, factors that are predicated to continue into the coming year.

After a period of remarkable expansion, the apartment market is expected to see supply volumes ease in 2018. Deliveries for the coming year are scheduled at around 330,000 units, down from the 2017 peak but nearly double the historical norm. RealPage counts new supply as developers finish units and push them into the leasing pool, a shift from previous calculations that counted new supply when all the units in a property were completed.

Construction volumes have also dropped significantly, to 382,000 units at the end of 2017. That’s down from the cycle’s peak of 478,000 units early this year, indicating that the annual completion volumes have peaked for the cycle.